EPA111d Observations and Questions V.1.0

Trudging through EPA’s Clean Air Act (CAA) section 111d Rules, and the Regulator Impact Analysis (RIA) regarding carbon intensity for power plants, I have preliminary observations and questions.  More will follow, I am sure, but here’s a first pass.

Observations v.1.0

• States are expected to reduce their emissions from fossil fueled power plants by 30%.
• The baseline year is 2005. Utilities have until 2030 to comply, with enforcement beginning  starting in 2020.
• States are encouraged (but not required) to collaborate with neighboring states.
• The goal is to reduce total carbon using [tons of carbon] / [overall load]. This is the key metric.
  • For “tons of carbon”, only carbon emissions from fossil fuel plants are counted
  • “Overall load” refers to  all energy use in the state
    • Demand-side energy efficiency (“EE”) can be in the denominator.
    • EE reductions will be measured in MWh (mega-watt hours), rather than in carbon reductions associated with the resource they’re offsetting or replacing.
• EE is a big deal.
  • 197 mentions of the words “energy efficiency” together in the RIA.
  • The fourth “building block” (of four) in the plan is to reduce emissions through “the use of demand-side energy efficiency reductions that reduce the amount of generation required” (RIA, page ES-2).
• Trading is encouraged!
  • I’m sure the devil is in the details, but they do discuss trading extensively, and mention the term 100 times in the Plan.
• Costs and Benefits:
  • The EPA estimates the compliance costs to range from $5.5 to $7.5 billion per year in 2020 (in 2011 dollars).
    • This seems modest to me considering the fact that electric utilities already spend about $5 billion annually on energy efficiency programs.  Presumably we would expect to see greater overall spending than the $5.5-$5.7 billion spending as laggard states who are not already doing energy efficiency play catch up with the rest of the country. Therefore, I would infer that the expected incremental expense to comply with this plan would be something less than $5.5-$7.5 billion.
  • The EPA estimates a range of quantifiable benefits under different scenarios, but the bookends are $26-$57 billion in quantifiable benefits.
    • Additional non-quantifiable benefits (primarily related to improved health) are in excess of these quantifiable benefits.

And a few questions that bubble up here:

• Which EE measures will be eligible?  Gross or net?  2012 baseline for demand side reductions is mentioned – does this mean states can go back and “scrape” achievements since then?  In the PNW we use a “frozen efficiency baseline”, which means that all conservation, regardless of the influence behind it, counts on the efficiency (or demand side) of the equation.
• Will additionality tests be required?  If so, additional to what?
  • For example, if WA State is already on track to achieve X MWh of EE in a given year, can these savings count towards the denominator in its carbon intensity metric, or can only the EE savings above and beyond X count?  (I sure hope it is the former!).
  • What about savings from “programs” versus market induced savings? Many know that I am a proponent of measure the full resource instead of just the projects that uses utility incentives, and I hope the EPA leans this way as well.  If not, then it will be a race to sprinkle incentive dollars (or “programmatic” dollars) over as many projects as possible in order to have them count.
• How will this trading work? Certain states (like WA and OR) have very low reduction targets (because their resources are largely non-fossil fuel based) and a high success rate of EE. Other nearby states (like WY and MT) have high carbon reduction targets and a less developed EE track record.  In concept, if trading opportunities exist WA and OR to make money selling carbon credits to other states? Now that would be a game changer!